Hansapank, owned by Stockholm-based Swedbank AB, will "at some point'' have to set credit growth restrictions in Lithuania, the biggest of the three Baltic countries, Raasuke said in an interview in Tallinn yesterday. It has not done so yet because Lithuania's expansion trails growth in Latvia and Estonia.

The economies of Lithuania, Latvia and Estonia are among fastest growing in the 27-member European Union, creating a boom in credit and raising warnings that growth may be overheating. The global credit crisis adds to concerns about a Baltic regional "meltdown,'' prompting banks to take steps to limit lending.

"We don't have any signs or confidence at this point that in Lithuania we would avoid the need for credit restrictions, but we would do it differently there,'' Raasuke, 36, said. "Instead of setting internal limits for absolute credit growth, we should rather set targets on diversifying the credit portfolio. These are the steps we didn't take in Estonia and Latvia.''

Estonian consumer lender Balti Investeeringute Grupi Pank AS, with a loan portfolio of 1.6 billion kroons ($140 million) at the end of the first half in Estonia and Latvia, said today it started operations in Lithuania with four offices.

Lithuanian Potential

The company, which lends money to people with bad or no credit history, expects to have as many as 100,000 potential clients in Lithuania, the company said on its Web site.

Hansapank predicted in April that Baltic loan growth will slow to around 35 percent this year from 59 percent last year, helped by lending restrictions it set to lower credit growth to more sustainable levels.

Rising wages have made the region's combined 7 million people more confident to take on debt, with lending jumping 83 percent last year in Latvia.

Latvian gross domestic product expanded 11 percent in the second quarter, the fastest in the EU, while Lithuania's growth in the period was 8 percent, surpassing Estonia for the first time since March 2003. Estonian GDP advanced 7.6 percent in the second quarter, compared with 10.1 percent in the first three months.

Import Boom

Credit growth fed a boom in imports in the region, inflating current-account deficits and stoking inflation beyond the levels needed for adopting the euro currency.

Credit evaluators Standard & Poor's and Fitch cut Latvia's credit rating to BBB+ this year, while S&P lowered its outlook for all three Baltic nations to negative because of the rising risk of a "hard landing.'' This month, Moody's also lowered its outlook for Latvia and Estonia to stable from positive, citing similar risks.

Raasuke said Hansapank should have acted earlier to cool loan growth in the light of its own forecasts in the second half of 2006.

"We were probably talking more and doing less, there was kind of a frozen state,'' Raasuke said. "But we are only a part of the market and it seemed that the critical mass was achieved only in February-March so that all market players could start moving in the same direction.''

Andris Vilks, the chief economist at AS SEB Unibanka, Latvia's second-biggest lender, said in July that the bank decided in a February management meeting to be "more careful'' in its lending. SEB Unibanka is a unit of SEB AB, Scandinavia's third- biggest bank, and the main rival of Swedbank in the Baltics.

Minimum Requirement

In April, Hansapank's Estonian unit raised the minimum monthly income requirement for granting a mortgage to 7,000 krooni ($607) from 5,000 krooni, compared with the average gross monthly salary of 11,549 krooni in the second quarter.

Two joint applicants would need a combined income of 10,000 krooni, compared with 7,500 krooni required previously. The bank last changed the requirements four years ago.

Raasuke said it was "obvious'' from Hansapank's business that lending behavior had changed within the last four to five months in Latvia and Estonia, citing a "clear decline'' in new loans, compared with peak monthly levels and the average levels of the last three to four years.

He said the decline in consumer confidence was not affecting the confidence of the banks, as the Baltic market is small compared with the size of the banking groups.

Estonian consumer confidence fell during August to its lowest level in almost two years because of worsening expectations about household and state finances.

Tripling Sales

Estonian investment gold seller AS Tavid has tripled its weekly sales to about 60 kilograms in recent months, newspaper Postimees reported yesterday, adding that people are also increasingly converting their bank deposits from krooni into foreign currency.

Raasuke said he sees no "big'' risk of a Baltic property sector collapse as the problems of oversupply are only affecting residential property business, with demand expected to remain strong for commercial property and especially civil engineering.